1 eFX Daily colour

1.1 FX Spot

1.1.1 US

(Feb-03) The dollar surged while equity markets and digital currencies plunged after US President Donald Trump announced significant tariffs on imports from China, Canada, and Mexico. This move, the most extensive act of protectionism by a US president in nearly a century, is expected to have widespread effects on inflation, geopolitics, and economic growth. The tariffs, affecting trade worth about $1.3 trillion, will raise the average US tariff rate significantly and could reduce US GDP by 1.2% while increasing core PCE by 0.7%. Mexico and Canada, heavily reliant on exports to the US, face severe economic risks, while China’s impact is more manageable. All three countries have vowed to retaliate, potentially expanding beyond tariffs. The overall impact on the US economy is uncertain, but significant disruptions are anticipated.

  • Key Points
    • Tariffs Announced: 10% on China, 25% on Mexico, 25% on Canadian non-energy goods, 10% on Canadian energy.
    • Economic Impact: Affects $1.3 trillion in trade, 43% of US imports, nearly 5% of US GDP. Raises average US tariff rate from ~3% to 10.7%. Potential reduction of US GDP by 1.2%, increase in core PCE by 0.7%.

(Feb-04) Currency markets are reacting strongly to President Trump’s tariff measures. The US dollar rebounded after China imposed retaliatory tariffs, signaling serious intent and raising concerns about further US counter-retaliations. This situation suggests higher US rates, increased FX volatility, and a stronger US dollar in the long term.

(Feb-04) Oil markets are under pressure as the US and China engage in a trade conflict, risking year-to-date gains for Brent and WTI. The temporary halt on trade escalation with Mexico and Canada negatively impacted crude by removing a levy on Canadian crude flows. The US-China tariffs could slow global growth, reduce energy consumption, and decrease risk appetite. Additionally, OPEC+ is eager to increase oil supply, adding further headwinds for crude prices.

1.1.2 EU

(Feb-04) EUR/JPY is expected to decline further due to geopolitical risks and a favorable rate gap for the yen. Beijing’s tariff retaliation supports haven currencies like the yen and pressures the euro, exacerbated by Trump’s tariff threats against the EU.

  • The US has a trade deficit with both the EU and Japan, but Japan is less affected due to a smaller trade bill with the US. Geopolitical risks and narrowing rate differentials favor the yen, with the ECB’s restrictive monetary policy stance allowing for more easing. The rate differential between the euro zone and Japan is 2.25%, narrower than most G-10 counterparts, putting pressure on EUR/JPY to align with the rate gap.

1.1.3 China

(Feb-04) China has announced an investigation into Google for alleged antitrust violations and imposed new tariffs on various US products in response to President Donald Trump’s 10% tariff on Chinese goods. The new Chinese tariffs include 15% on coal and liquefied natural gas, and 10% on oil and agricultural equipment from the US. China criticized the US’s unilateral tariffs as a violation of World Trade Organization rules and harmful to economic cooperation

1.1.4 SA

(Feb-03) The upcoming week is significant, starting with market reactions to President Trump’s tariffs, SA State of the Nation Address (SONA) on Thur, and ending with the US payrolls report. Trump announced cutting off future funding to South Africa, accusing it of land confiscation and poor treatment of certain classes. This follows SA’s new bill allowing “nil compensation” for expropriated property. The rand weakened due to Trump’s comments and local load-shedding concerns, with potential moves to 19.00 USDZAR. Despite this, positive fundamentals for the rand remain, supported by a record gold price (saw a new high of 2817 31-Jan). A break below the 18.60 level would indicate a potential easing, otherwise, ZAR remains under pressure.

(Feb-03) S. AFRICA CAN WITHHOLD MINERALS IF US WITHHOLDS FUNDS: MANTASHE

(Feb-04) Eskom has officially suspended load-shedding as of February 2, 2025, after resolving recent breakdowns. Electricity Minister Dr. Kgosientsho Ramokgopha announced the suspension and praised Eskom’s teams for their efforts. He apologized for the disruptions and assured residents of continued efforts to provide reliable electricity.

1.1.4.1 USDZAR Volumes

  • Volumes were up 25% compared to recent ADV where we saw clients being net short USDZAR.
    • Much of this was clients hedging ZAR positions as we saw a couple of large tickets.

1.1.4.2 USDZAR levels

  • (Jan-31) There is still not enough ZAR supportive information, as such, we do not expect to trade below 18.40 anytime soon.
    • President Trump also threatened to impose 100% tariffs on the BRICS countries should they go ahead and move away from using the dollar.
  • (Feb-03) SA under pressure today following President Trump’s comment about the expropriation bill. We now see the ZAR levels at 19 and 18.60.
  • (Feb-04) Our range still at 19 - 18.60 with 18.60 being a critical pivot point for ZAR as it would be a confirmation of moderation in the rand.
    • We are seeing most activity at 18.70.

1.1.4.3 USDZAR spreads

  • (Jan-31) Good news continue to ran away from ZAR as we are seeing the market de-risk at the back of Loadshedding and Trump comments.
    • Spreads remain elevated
  • (Jan-31) ZAR extend gains today after news that tariffs on Mexico would be delayed for a month. We are now trading below the 18.80 lvl and are waiting for a break below 18.60 which would act as confirmation of easing pressure on the rand.

1.1.5 Key events this week:

  • China Caixin services PMI, Wednesday
  • Eurozone HCOB Services PMI, PPI, Wednesday
  • SA SONA, Thursday
  • Eurozone retail sales, Thursday
  • UK rate decision, Thursday
  • Mexico rate decision, Thursday
  • India rate decision, Friday
  • Canada unemployment, Friday
  • US nonfarm payrolls, unemployment, University of Michigan consumer sentiment, Friday

1.2 FX Volatility Update

1.2.1 Update

By Thuto Mukena - Institutional Sales Specialist (Jan-31)

  • Overview

It’s been a data-packed, headline-heavy week, with risk conditions swinging in all directions. The ZAR has had a choppy week, yesterday’s 25bps SARB rate cut sent the local unit in the red territory, reversing some of its prior session’s gains, leaving the pair to close the week at R18.5688/$.On the vol front, the 1-week volatility risk premium has compressed deeper into negative territory, highlighting that the market mispriced and underpriced this week’s risk conditions. USD/ZAR Implied vols also hover lower as we brace for an exit for this week , the 1W USD/ZAR implied vol tenor no longer trading at a premium over 1M. The tenor closed yesterday’s session 1.87 vol p.p below opening levels.

  • EM & G10

EM pairs saw mixed spot performance on the day, while most G10 currencies were offered, closing the session weaker. On the implied vol front, G10 implied vols largely tracked spot moves, with USD/CAD and USD/JPY 1-week implied vols standing out as the exceptions, firming by 145bps and 64bps from the open. Main event on the day was the ECB rate decision, EUR/USD 1-week implied vol dropped by 62bps, declining alongside spot in the aftermath of the ECB’s 25bps rate cut, which set the deposit rate at 2.75%. Key take aways from the press conference is that the central bank maintained a data-dependent stance on future cuts, emphasizing that policy remains restrictive while also flagging concerns about growth risks in the region.

1.3 Africa

1.3.1 Update

By sizwe Mfayela - Institutional Sales Specialist (Feb-03)

  • Ghana
    • Ghana’s Jan YoY CPI cooled to 23.5% vs 23.8% in Dec. Food inflation remained elevated at 28.3%, whilst non-food price inflation slowed to 19.2%.
    • Johnson Asiamah, Ghana’s new central bank governor said the Bank of Ghana may consider tweaking some of it’s policies given the challenges the country has faced recently.
  • Kenya
    • Kenya’s National Treasury supportive of East African Bond Exchange. EABX, the privately owned electronic platform will enable trading of government securities over the counter. The electronic platform is part of national Treasury’s 2025 draft medium-termdebt management strategy.
  • Mauritius
    • Mauritius public sector debt for Q4 2024 rose by 3.7% to MUR 608bio (c.$12.7bio), driven mainly by an increase in short term borrowings from Treasury bills. Debt to GDP ratio also rose to 87% from 85.4%.
  • Nigeria
    • Nigeria looks to increase its crude oil and condensate production to 2.7mio bpd by 2027. The country looks to become a net exporter of oil as fuel subsidy removal could boost investment in refineries, whilst the recently built oil refineries increase production.
    • Nigeria’s Federal Executive Council approved NGN 1.04trio (c.$695mio) for critical major road and bridge infrastructure in the country.
  • Zambia
    • ZANACO CEO, Mukwandi Chibesakunda says he sees Zambia inflation cooling this year because of base effects. Zambia has also seen improved rainfall which will benefit the farmers resulting in reduced food inflation. Zambia’s Jan inflation was similar to December at 16.7%.
  • Eurobonds
    • A roller coaster ride in SOAF yesterday with the SA-USA relations headlines taking the local and external bonds wider and the currency weaker in the morning. Selling cares were light however, with real money sitting on the sidelines as ETF and hedge funds took the opportunity to sell (SAGB traders saw a similar dynamic).
    • Buyers soon came through at the +15-16bps wides, which had the curve retrace ~5bps. The curve saw more tightening after the Mexico tariff delay headlines to close 0.125-0.50pts lower (0.25-1.00pts off the lows).

1.3.2 Economic data

Economic data releases